Surge in Investor Purchases Gave Home Prices Boost in February

04/27/2012 By: Esther Cho

While Radar Logic reported home prices in February showed a month-over-month increase, the real estate data provider sees this trend as possibly being temporary, considering that warm weather and investment buying helped to drive up sales.

Home prices increased 1.9 percent over the month ending February 16, according to Radar Logic’s RPX Composite Price, which tracks 25 major metropolitan areas.
This increase was bolstered by strong sales in February. Sales transactions for the RPX Composite increased 22.9 percent month-over-month and 16 percent year-over-year through February 16.
“We believe that investment buying and mild weather are contributing to this strength, and both may be temporary,” the Radar Logic report stated, which was authored by Director of Research Quinn W. Eddins.

Since 2009, purchases from corporate investors have increased rapidly in certain metro areas.
A leading example of this trend is Las Vegas, where corporate investor purchases increased 1,300 percent while housing transactions increased 264 percent from January 2009 to February 2012. In Miami, purchases from corporate investors increased 714 percent compared to 185 percent for total sales during that same period. In Los Angeles, corporate investor purchases increased 421 percent compared to a 36 percent increase in total sales. In New York, they increased 126 percent while sales increased 69 percent.
The result of increased investment activity has been argued to reap both benefits and disadvantages for home prices.
According to Radar Logic, investors, who are primarily interested in REO properties, buy homes at a significant discount, depressing the aggregate price for houses.
“Moreover, investor purchases of distressed properties at heavy discounts have hurt the values of surrounding properties by providing appraisers with low-priced comparable sales,” the report stated.
On the other hand, the influx of corporate investors into metropolitan housing markets, particularly those with high concentrations of foreclosures and large REO inventories, could strengthen aggregate home prices as people become aware of the fact that investors are buying up properties in large quantities, according to the report. Sellers could then have a strong incentive to raise their prices, which could start to firm prices in the market, Radar Logic explained.

Pending Home Sales Index Jumps in March

04/26/2012 By: Mark Lieberman, Five Star Institute Economist 

The Pending Home Sales Index (PHSI) rose sharply in March to 101.4 from February’s revised 97.4, the National Association of Realtors (NAR) reported Thursday.

Economists had expected the index to increase 1.0 percent from February.
The index is now at the highest level since April 2010 when it reached 111.3.
The index improved for the third straight month and fifth time in the last 6 months. The March reading is up 12.8 percent from March 2011, the strongest year-over-year gain since last July when the index was 15.4 percent over its year-earlier level.
Pending home sales are counted when sales contracts are signed and are viewed as a leading indicator of existing home sales; recent reports suggest that home re-sales should be a bit stronger over the next couple of months but at a level that is still fairly subdued. March pending sales would be included in the home sales report for May.

In January, the PHSI rose to 97.0 from 95.1, but existing-home sales in March fell to 4.48 million (seasonally adjusted annualized rate) from an upwardly revised February rate of 4.60 million. Based on the increase in the PHSI, economists had forecast the March sales pace would be 4.62 million.
In March, the PHSI rose 8.7 percent in the West and 5.9 percent in the South while slipping by less than one percent in both the Northeast and Midwest.
The PHSI has been drifting upward, albeit modestly for most of the past two years.
The March gain is consistent with the beginning of the traditional home buying season and tempered by the reality that a substantial number of sales contracts are failing to meet underwriting standards and/or other loan criterion as sales contract cancellations remain elevated.
Although a hopeful movement, home sales still appear to be searching for a sustainable level and continue to be subject to conflicting trends in labor markets, household formation, mortgage interest rates, and underwriting standards.
Nonetheless, the increase was cheered by Lawrence Yun, NAR chief economist.
“The housing market has clearly turned the corner. Rising sales are bringing down inventory and creating much more balanced conditions around the county, which means home prices will be rising in more areas as the year progresses,” Yun said.
The index is based on a large national sample, representing about 20 percent of transactions for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales; it coincides with a level that is historically healthy.

Mortgage Delinquencies Head Further South

04/25/2012 By: Carrie Bay 

Mortgage delinquencies fell back on both a monthly and annual basis in March, according to preliminary market data released by Lender Processing Services (LPS) for the month.

The company’s estimation puts the national delinquency rate – measured as 30 or more days past due but not in foreclosure – at 7.09 percent.
That’s down 6.3 percent from the previous month, an 8.8 percent drop from March 2011, and is the first time since

2006 that the delinquency rate has come in lower by both measurements, according to LPS.
The nationwide foreclosure rate stands at 4.14 percent by LPS’ assessment – up just barely one-tenths of a percentage point from February and down 1.6 percent from a year earlier.
LPS reports that there are 2,060,000 properties that comprise the nation’s foreclosure inventory.
Another 3,531,000 have missed at least one mortgage payment but haven’t made it as far as foreclosure yet. Of those, 1,643,000 are behind by three or more payments and will likely join the foreclosure inventory soon.
Altogether, the numbers equate to 5,591,000 mortgaged properties that are in arrears.
According to LPS’ report, the states with the highest percentage of non-current loans in March – including 30-plus days delinquent and in foreclosure – were Florida, Mississippi, Nevada, New Jersey, and Illinois.
States with the lowest percentage of non-current loans for the month included Montana, Alaska, South Dakota, Wyoming, and North Dakota.

Call for GSEs to Apply Principal Reduction Continues

04/24/2012 By: Esther Cho 

In a written speech to the National Council of State Housing Agencies on Monday, a Treasury official named a number of measures to address challenges in the housing market, and stressed one solution that has not been applied by Fannie Mae and Freddie Mac: principal reduction.

“We have also asked FHFA to allow the GSEs to participate in the principal reduction alternative of the Home Affordable Modification Program known as HAMP,” said Mary Miller, Under Secretary for Domestic Finance, in her written speech. “Given the large percentage of outstanding mortgages that are currently backed by Fannie or Freddie, it is important that the GSEs participate in this program.”

Calling principal reduction a useful tool, Miller said in “some targeted cases, principal reduction makes economic sense for both the homeowner and the lender – helping reduce investor losses and preventable foreclosures over the long term.”
Miller stated that this view not only belongs to the administration and government agencies, but also to those in the private sector.
Miller referenced a quarterly survey from the Office of the Comptroller of the Currency to further prove her point and stated the survey showed that of the mortgages held by private investors, nearly one in five that were modified also had reduced principal, and in the last six months, more than 40 percent of non-GSE mortgages modified through HAMP included principal reduction.
Recently, Edward DeMarco, FHFA Acting Director, has been under pressure to allow the GSEs to apply principal reduction in order to speed up recovery in the housing market and prevent underwater mortgages from going into foreclosure. Citing costs to taxpayers, DeMarco recently emphasized principal forbearance as a less costly form of relief.
To encourage the GSEs to apply principal reduction, the Treasury recently tripled incentives to between 18 and 63 cents for every dollar of principal reduced.
Other measures Miller mentioned to address the housing crises were the expanded HARP 2.0, a national program for GSEs to dispose of foreclosed properties, and hardship assistance such as the Hardest Hit Funds.

Three Nonprofits Join to Transform Vacant REOs into Future Residences

04/23/2012 By: Esther Cho 

Three nonprofits are working together toward an effort to rehabilitate vacant REO properties and support homeownership. Rebuilding Together, NeighborWorks America, and the National Community Stabilization Trust are committing to a three-year partnership to turn vacant and dilapidated properties into affordable homes in the communities they serve.

“Bringing stability back to neighborhoods hard hit by foreclosures will take new innovative collaborations between partners with the insight, resources, and expertise to impact change,” said Craig Nickerson, president of the National Community Stabilization Trust.
The joint initiative focuses on three areas. The first is providing training for local Rebuilding Together affiliates to operate programs to acquire, rehabilitate, and resell REO properties to help stabilize communities affected by foreclosure.
As part of an asset-building strategy for its affiliates, Rebuilding Together is creating a pilot REO fund to assist its local affiliates in acquiring and remediat REO properties.

Once rehabilitated, the properties will be sold at affordable prices to low- or moderate-income homebuyers in the community.
The National Community Stabilization Trust will provide Rebuilding Together affiliates with access to listings of REO properties and other services to locate and acquire the properties to be resold.
The second is the expansion of NeighborWorks America’s Loan Modification Scam Alert campaign, which educates homeowners on protecting themselves against loan modification scams.
Finally, the partnership will provide one local Rebuilding Together affiliate with an opportunity to participate in the NeighborWorks America board governance program, which trains nonprofits to more effectively use existing tools and resources to improve the performance of their governance boards.
Rebuilding Together is a nonprofit working to preserve affordable home ownership and revitalize neighborhoods by providing extensive rehabilitation and modification services to those in need at no cost to those served.
NeighborWorksAmerica creates opportunities for people to improve their lives and strengthen their communities by providing access to homeownership and to safe and affordable rental housing.
The National Community Stabilization Trust is a nonprofit organization that was created to help revitalize neighborhoods affected by the foreclosure crisis. Formed in 2008, Stabilization Trust builds the capacity of state and local governments, and community-based housing organizations to acquire, manage, rehab, and sell foreclosed properties.

RE/MAX Survey of 53 Metros Finds Home Prices Up Again

04/20/2012 By: Esther Cho 

According to a March 2012 housing report released by RE/MAX, home prices have risen for the second month in a row now on a year-over-year basis. The RE/MAX report included 53 metro areas and found the median price in March was $184,525, a 7.3 percent price increase from February, and a 5.8 percent increase from a year ago in March 2011. A consecutive increase on a year-over-year basis has not occurred since August 2010, according to the report.

Also, according to the March report, of the 53 metro areas, 36 experienced year-over-year price increases, with 10 seeing double-digit gains including Detroit, Michigan (+22.8 percent); Miami, Florida (+21.8 percent); St. Louis, Missouri (+18.5 percent); Phoenix, Arizona (+18.2 percent); Atlanta, Georgia (+13.7 percent); and Orlando, Florida (+12.7 percent).
“Although we don’t expect home prices to rise in every market at the same rate, the worst is definitely behind us, and a slow, steady recovery is taking hold,” said Margaret Kelly, CEO of RE/MAX.

March home sales surged 25.4 percent compared to February and rose by 1.5 percent a year ago. RE/MAX attributed the significant increase to good weather, low interest rates, attractive pricing, and improving consumer confidence.
Of the 53 metro areas included in the March survey, 33 experienced a year-over-year increases in sales, 17 of which saw double-digit growth including Wilmington, Delaware ( +41.8 percent); Omaha, Nebraska (+30.6 percent); Providence, Rhode Island (+26.6 percent); Tulsa, Oklahoma (+26 percent); Chicago, Illinois (+23.7 percent); and Milwaukee, Wisconsin (+21.4 percent).
For homes sold in March, the average number of days on market was largely unchanged at 101, two days less than February’s average and three days less than the year ago average.
The average inventory of homes on the market in March dropped 2.8 percent from the previous month of February and 23.2 percent from March 2011. The drop in March marks the 21st consecutive month inventories have fallen.
The months supply dropped to 5.3 months compared to February’s 6.6 month supply and the 7.1 month supply in March 2011. Months supply is the number of months it would take to clear a inventory at the current rate of sales. A six-month supply is considered a balanced market between buyers and sellers.
RE/MAX was founded in 1973 by Dave and Gail Liniger, real estate industry visionaries who still lead the Denver-based global franchisor. RE/MAX is a real estate franchisor with the a global reach of more than 80 countries.

Economists Respond to March's Fall in Existing Home Sales

04/19/2012 By: Esther Cho

The National Association of Realtors (NAR) reported Thursday that existing home sales decreased 2.6 percent, in March, to a seasonally adjusted annual rate of 4.48 million units, falling short of the 4.62 million economists had forecast. In response to this data, economists representing different institutions provided their insight to explain what the recent numbers might indicate.

Patrick Newport, U.S. economist, IHS Global Insight
“Existing home sales declined in March mainly because fewer investors bought homes. Sales to those looking for a home to live in have been flat (and weak) for the past six months, despite low borrowing rates, low home prices and rising rents. A critical

question is whether sales are set to take off soon, given the improving economy. Our view is that sales will improve during the course of this year, but unless credit conditions loosen significantly, a takeoff will not take place.”
NAR reported investors bought 21 percent of the homes sold in March, down from 23 percent in February.
Paul Diggle, property economist, Capital Economics
“March’s decline in existing home sales probably reflects the normal month by month volatility rather than renewed underlying weakness. The increase in households’ confidence in the outlook for the housing market, coupled with a gradual improvement in the pace of the economic recovery, should drive a rise in home sales later this year….It is possible that the pattern within the quarter has been driven by the weather, with falls in the most recent two months reflecting a degree of payback after January’s gain.”
Mark Vitner, senior economist and Anika R. Khan, economist, Wells Fargo
“Existing home sales dropped 2.6 percent, but are up 5.2 percent from a year ago. While existing sales are down for the second consecutive month, we are likely continuing to see payback from increases earlier this year. That said, we could see one more month of disappointing data, but we still contend the recent declines are not indicative of the trend. Stabilization will become more apparent once we return to normal weather.”

Article of the Day

Agencies See Measurable Improvements in Consumer Default Rates

04/18/2012 By: Carrie Bay 

Data through March 2012, released this week by S&P Indices and Experian showed that, with the exception of bank cards, all consumer loan types saw a decrease in default rates for the third consecutive month and in March, posted their lowest rates since the end of the recent economic crisis.

The S&P/Experian Consumer Credit Default Indices measure changes in consumer credit defaults by tracking the default experience of consumer balances in four key loan categories: first mortgage lien, second mortgage lien, auto, and bank card. The national composite reading of defaults across all four categories declined to 1.96 percent in March, down from the February rate of 2.09 percent.
The first mortgage default rate decreased from February’s 2.02 percent to 1.88 percent in March, according to the agencies’ report. Second mortgage defaults declined from 1.20 percent to 1.03 percent over the same period.
Overall, the financial health of consumers appears to be strengthening, as S&P and Experian recorded a similar decline for auto loan defaults, which slipped to 1.11 percent. Bank card was the only loan type where default rates increased in March, rising 6 basis points to 4.47 percent.
“The first quarter of 2012 was largely positive for the consumer,” said David M. Blitzer, managing director and

chairman of the index committee for S&P Indices. “Not only have we resumed the downward trend in consumer default rates that began in the spring of 2009, but we appear to be reaching new lows across most loan types.”
Blitzer notes that the first three months of 2012 show broad-based declines in default rates with first and second mortgage, auto, and composite default rates all reaching post-recession lows.
“The first mortgage default rate fell by 14 basis points in March, bringing this rate below the prior August 2011 low,” Blitzer explained. “The second mortgage rate fell by even more during the month, 17 basis points,… also at [its] lowest in the three-plus year history of these data.”
Four of the five cities tracked by the agencies’ study saw their default rates drop in March. For the third consecutive month, Chicago saw a decline. Its rate has fallen from 2.84 percent in December to 2.35 percent in March. That’s almost half a percentage point and one of the two cities to post a new consumer default low.
New York and Miami both fell for the second consecutive month. New York decreased slightly from 2.04 percent in February to 2.01 percent in March. Miami dropped almost a full percentage point, from 4.54 percent to 3.62 percent. While it still remains the highest default rate among the study’s five cities, Miami is the other city to hit a post-recession low in March.
Dallas moved down from 1.61 percent in February to 1.44 percent in March and retains the lowest rate among the five cities the agencies follow. Los Angeles was the only city where default rates marginally rose, from 1.87 percent to 1.88 percent.
The S&P/Experian Indices are calculated based on data extracted from Experian’s consumer credit database, which is populated with individual consumer loan and payment data submitted by lenders, including banks and mortgage companies, every month. Experian’s base of data contributors covers approximately $11 trillion in outstanding loans sourced from 11,500 lenders.

Article of the Day

Fannie and Freddie Set Timeline Requirements for Short Sales

04/17/2012 By: Carrie Bay 

Beginning June 15, real estate agents working with distressed homeowners whose loans are backed by Fannie Mae and Freddie Mac should expect to receive a decision on a short sale offer within 30-60 days.

The GSEs issued new guidelines Tuesday that fall under the Servicing Alignment Initiative rolled out last fall and aim to bring greater transparency to the short sale process and expedite decisions related to these pre-foreclosure sales.
Not only is a short sale an effective foreclosure alternative when home retention is no longer an option, but it keeps homes occupied and helps to maintain stable communities, according to the Federal Housing Finance Agency (FHFA).
Addressing real estate practitioners’ No. 1 complaint about short sales, FHFA directed Fannie Mae and Freddie Mac to establish a new uniform set of minimum response times that servicers must follow in order to facilitate more efficient short sale transactions.
The GSEs’ new short sale timelines require servicers to make a decision within 30 days of receiving either an offer on a property under the companies’ traditional short sale programs or a completed Borrower Response Package (BRP) requesting short sale consideration, whether it’s through the federal government’s Home Affordable Foreclosure Alternative (HAFA) program or a GSE program.

If more than 30 days are needed, servicers must provide the borrower with weekly status updates and come to a decision no later than 60 days from the date the BRP or offer was received.
According to the GSEs, this 30-day add-on will provide some leeway for servicers who may need more time to obtain a broker price opinion (BPO) or a private mortgage insurer’s approval for a short sale. All decisions must be made within 60 days.
In the event a servicer makes a counteroffer, the borrower is expected to respond within five business days. The servicer must then respond within 10 business days of receiving the borrower’s response.
The GSEs plan to use the new short sale timelines to evaluate servicer compliance with the Servicing Alignment Initiative.
Edward DeMarco, acting director of the FHFA, says the GSEs new borrower communication and timeline requirements for short sales “set minimum standards and provide clear expectations regarding these important foreclosure alternatives.”
GSE servicers must comply with the new minimum communication time frames for all short sale evaluations conducted on or after June 15, 2012, although servicers are encouraged to begin implementing the new requirements sooner.
“I applaud Fannie and Freddie for finally coming out with real guidance with real world timelines for their servicers,” commented Anthony Lamacchia, broker/owner of McGeough Lamacchia Realty Inc., which specializes in short sales. “There is no question that this will help short sales and the market as a whole.”
Last year Freddie Mac completed 45,623 short sales, a 140 percent increase since 2009. Fannie Mae’s short sale completions shot up by 101 percent over the same period, totaling around 79,800 in 201

Article of the Day

Head of IMF Calls for Principal Reductions for American Homeowners

04/16/2012 By: Carrie Bay

The head of one of the world’s most powerful financial policy bodies has tossed her hat into the debate over mortgage principal reductions. Christine Lagarde, managing director of the International Monetary Fund (IMF), says “the housing problem in the U.S. is something that needs to be addressed” and it is “a matter of urgency.”

Speaking at the Brookings Institution in Washington D.C. late last week, Lagarde stressed the importance of debt restructuring in the context of a global financial crisis that threatened our very foundations, and inevitably, the conversation turned to the U.S. housing market- the type of internal debt restructuring that Lagarde wants to see being conducted with urgency, and the economic albatross hindering any sort of meaning recovery here in the states.
“This is something that the IMF has had a long-standing position on,” Lagarde said, referring to the absolute necessity that America’s housing issues command. She noted that measures have been taken in the U.S. to stem housing’s spillover effect.
“There are proposals made by the administration,” Lagarde acknowledged, tipping her hat to writing down the overvalued mortgage debt being carried by so many Americans. The problem, however, is that “the big boys and girls-Fannie and Freddie-have to be part of the equation,” according to Lagarde.
Edward DeMarco, the lone voice of opposition to lowering homeowners’ outstanding debt to align with current fair market values, has come under heavy pressure in recent weeks from the administration, members of Congress, and officials of its fellow housing regulatory agencies to permit the use of principal writedowns as one element of the GSEs’ workout hierarchy. Now, he’s feeling the public pressure from the leading governing body of the global financial community.
“[C]learly the American households have to be able to unload a bit, just in the way we’ve encouraged banks to

lend, well the households have to be helped to borrow so that consumption and appropriate indebtedness can be reinitiated. That’s our position,” Lagarde stated definitively.
Lagarde called on policymakers around the globe to take this “opportunity to push on and take the further actions that are certainly needed to keep the crisis at bay and finally put it behind us.” For the leaders of the United States, that means addressing the housing crisis head-on, Lagarde noted.
With the close knit ties of financial systems from continent to continent, it’s each country’s obligation to fix their own inherent issues and challenges so as not to be the one keeping its comrades from moving past the global financial crisis and on to more prosperous days.
“[W]e need financial systems that support-not destabilize-the economy,” Lagarde said. “This means repairing financial systems so they can deliver credit, growth, and jobs.
“This means better regulation and supervision, and coordination across countries, to prevent the recurrence of reckless risk-taking. And, it means getting the financial sector to pay its fair share. We dare not be complacent on financial sector reform. The mission has not been accomplished-the mission is still to be accomplished,” Lagarde stressed.
Lagarde shared with the audience that she still has a “very clear recollection of a decisive moment in 2008” when she realized there was a crisis and it was here, and she thought to herself, who is going to be able to deal with a financial crisis of this scope and scale, where our “financial interconnections actually brought the entire economy to the brinks,” she said.
“Only a few months ago, we seemed to be staring into the abyss,” Lagarde admitted. “More recently, some data have indicated that the United States may be beginning to turn the corner. Financial strains in Europe have eased somewhat since December. However, events of the past week remind us that markets remain volatile and that ‘turning the corner’ is never easy.”
Lagarde’s remarks at the Brookings Institution came just ahead of the meeting between finance officers from the Group of 20 nations, the IMF, and the World Bank, scheduled to convene in Washington, D.C. this week.
Her institution speech served as almost a rehearsal run for the message she seeks to convey to her sovereign bank cohorts: We have seen some improvement in the economic climate. But let me also underline this point: the risks remain high; the situation fragile

Article of the Day

Eleven AGs Send Letter Urging DeMarco to Reverse Course

04/13/2012 By: Ryan Schuette 

Eleven state attorneys general sent a letter to Edward DeMarco, Acting Director of the FHFA, urging him to allow Fannie Mae and Freddie Mac to move forward with principal reductions.

Headlined by Massachusetts Attorney General Martha Coakley, the letter doubled down on the FHFA to “preserve assets and prevent unnecessary foreclosures by implementing loan modifications that include principal write-downs.”
State attorneys general said that new reductions “should consider all of a borrower’s debts, not just the monthly mortgage debt, be uniform, transparent, and publicly disclosed.”

The letter added that current statistics and analysis are “completely model driven and FHFA’s analysis cautions that the model used may not be appropriate. We encourage the FHFA to use actual results in its analyses where real data are available, including data from HAMP, and the anticipated data from the ‘Multistate Servicing Settlement.’”
When comparing principal reduction versus principal forbearance, the letter stated that principal reduction improves an underwater borrower’s equity position, which “will incent homeowners to maintain loan payments resulting in lower re-default rates.”
Pointing to the Treasury’s recent tripling of incentive payments to mortgage investors who allow principal reduction, the letter stated that this should substantially reduce FHFA’s concerns over the financial impact of principal reduction, noting that the “payouts ranged between six and 21 cents to the investors for each dollar forgiven under HAMP, but that will grow to between 18 and 63 cents.”
FHFA Acting Director Edward DeMarco continues to resist calls by lawmakers and policymakers to implement new loan modifications for homeowners, stressing the agency’s “preserve and conserve” mandate.
Coakley and others were joined this week by International Monetary Fund Director Christine Lagarde, who reportedly leaned on regulators to reduce the mortgage debt owned by U.S. homeowners.

Article of the Day

Freddie Mac Reports 15-Year Rate Fell to New Low

04/12/2012 By: Esther Cho 

Following a disappointing employment report, fixed rate averages fell for the third week in a row, with the 15-year fixed-rate hitting a new low, while the 30-year rate continues to fall further beneath 4 percent, according to Freddie Mac’s Primary Mortgage Market Survey.

The 30-year fixed-rate mortgage slipped to 3.88 percent (0.7 point) for the week ending April 12, down from last week when it stood at 3.98 percent and a decline from last year at this time when the 30-year average was 4.91 percent.
The 15-year rate dropped to 3.11 percent (0.7 point), hitting a record low from when it averaged 3.13 percent on March 8, 2012. Last week, the 15-year’s average was 3.21 percent and 4.13 percent a year ago during this time.

The 5-year ARM was also down, averaging 2.85 percent (0.7 point) this week, down from the week before when it averaged 2.86 percent and down a year ago when it was 3.78 percent.
The 1-year ARM rose slightly to 2.80 percent (0.6 point), up from 2.78 percent last week. The 1-year ARM averaged 3.25 percent a year ago at this time.
“Fixed mortgage rates eased for the third consecutive week following long-term Treasury bond yields lower after a weaker than expected employment report for March. Although the unemployment rate fell to the lowest reading since January 2009, the overall economy added just 120,000 new jobs in March, nearly half that of the market consensus forecast,” said Frank Nothaft, VP and chief economist for Freddie Mac.
Nothaft also noted reports from the recent April 11th Beige Book, which revealed hiring was steady, or showed a modest increase across many of its districts.
Bankrate also reported declines this week, with the 30-year fixed averaging 4.11 percent, down from 4.25 percent last week. The 15-year fixed ended at 3.32, a decline from last week’s 3.42 percent. The 5-year ARM fell to 3.03 percent compared to last week’s 3.15 percent.
Bankrate’s national weekly mortgage survey is based on data provided by the top 10 banks and thrifts in the top 10 markets.

Article of the Day

CFPB to Propose Rules for Servicers to Tackle Problems

04/10/2012 By: Esther Cho 

The Consumer Financial Protection Bureau (CFPB) is looking to propose mortgage servicing rules to keep borrowers from “costly surprises” and prevent servicers from giving customers “the runaround.”

Lack of transparency and lack of accountability are the two issues motivating the new rules, and to create more transparency, the CFPB is considering the following as proposals: clear monthly mortgage statements, a warning before interest rates adjust, options to avoid “force-placed” insurance, and early information to keep customers out of foreclosure.

To hold servicers more accountable, the bureau wants to see payments immediately credited to avoid late fees, up-to-date records that are accessible, quickly corrected errors, and easy, ongoing access to a foreclosure prevention team.
In recent years, the bureau said borrowers have complained that they did not receive the information needed to help avoid foreclosure.
The CFPB plans to propose the rules this summer and finalize them in January 2013.
David H. Stevens, president and CEO of the Mortgage Bankers Association (MBA), said in a statement that the national standards have potential to create more confidence and certainty in the industry for borrowers and servicers, but offered a caveat.
“It is important that the final rules don’t give preference to one business type over any other, nor should they inhibit innovation or discourage new companies from entering the marketplace,” he said.
As the CFPB develops the rules, the bureau plans to engage with consumers and those in the industry.
In response to the financial crises, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFPB in July 2010. The bureau exists to protect consumers and has the authority to regulate financial institutions and write new rules.

Article of the Day

Mortgage Litigation Reaches All-Time High: Report

04/09/2012 By: Esther Cho 

Mortgages are becoming more and more of a litigious matter, with the number of mortgage-related cases reaching an all-time high, according to Mortgage Daily’s 2011 fourth quarter Mortgage Litigation Index, which first began in 2007.

At 244 cases, the number rose from 218 in the 2011 third quarter and from 151 cases during the 2010 fourth quarter.
Foreclosure-related litigation cases, which include servicer-related litigation, foreclosure lawsuits, and cases against foreclosure rescue services, reached 99 and accounted for 40 percent of the total.
“These numbers are a reflection of both a high volume of foreclosures and a high level of awareness among borrowers that foreclosure-related issues can be litigated, sometimes successfully,” said Christopher Willis, author of the white paper on the index and an Atlanta-based partner in Ballard Spahr’s Consumer Financial Services Group.

The number of criminal cases jumped from 34 during the 2011 third quarter to 57 in the following fourth quarter.
“While the majority of these cases involved the alleged actions of individuals involved in frauds such as Ponzi schemes and foreclosure rescue scams, there were notable criminal indictments for alleged “robo-signing” beginning at the end of 2011,” said Willis.
Cases involving mortgage-servicing increased from 51 cases during the previous quarter to 70 cases.
Fee lawsuits, which involve excessive fees collected at origination, servicing fees, loan fees that exceed state maximums, and fees to county recorders, posted an all-time record number, along with title cases, which include issues with property title and title insurance claims. Fee cases jumped to 17 this quarter compared to 2 cases during the previous quarter, and title rose to 46 from 31 during the third quarter, and 6 from the second.
According to Willis, the increases reflect the large numbers of cases challenging MERS.
With these increases, mortgage-related lawsuits are not expected to decline. Willis cites several reasons for the projection.
“In particular, the publicity surrounding the multi-state settlement, together with publicity surrounding other aspects of mortgage litigation, tends to stimulate borrowers and their counsel to assert claims against mortgage servicers,” said Willis. “This publicity, coupled with the continuing high rate of foreclosures, suggests that the current level of mortgage-related litigation can be expected to remain stable, if not continue to increase.”

Article of the Day

Credit Scores Rising, LTVs Dropping on New Mortgages: Report

04/06/2012 By: Carrie Bay 

Mortgage lenders remain cautious in terms of credit quality, down payments, and valuations, as evidenced by the findings outlined in the new Origination Insight Report generated by Ellie Mae.

The company found that the average credit score for loans approved by lenders and closed is steadily rising, while acceptable loan-to-value (LTV) ratios are declining.
Ellie Mae’s report series tracks the current lending environment for refinance and purchase mortgages and provides metrics on the kinds of loans getting done and on the challenges consumers and lenders are facing. The company intends to issue the report monthly.
Ellie Mae’s inaugural Origination Insight Report discusses changes in mortgage lending activity over the month of February 2012, as compared to the company’s historical data from the prior six months.
The average credit score on loans that closed was 750 in February, up from 740 six months before. Meanwhile, the average loan-to-value (LTV) ratio was 76 percent, a decrease of 3 percent from August 2011.
The average FICO score for borrowers who were denied a loan in February was 699, according to Ellie Mae’s analysis. The average LTV of denials was 83 percent.
“If you look at the full report on our website, you’ll see the impact of the higher underwriting requirements for refinance that were in place in February,” said Jonathan Corr, COO for Ellie Mae.
“Last month, if your FICO score was below 720 or you had a down payment or equity of less than 25 percent, there

was a good chance that your refinance application for a conventional loan was denied or you were offered a significantly less attractive interest rate, Corr explained.
He also noted that borrowers denied a mortgage refinancing during the month had a front-end debt-to-income (DTI) ratio – which is calculated as total housing payment divided by total gross income – of 27 percent and a back-end DTI – measured as all monthly debt, including the mortgage, divided by gross income – of 43 percent.
Those borrowers that were approved for a loan and closed in February demonstrated a front-end/back-end DTI of 23/34.
Ellie Mae also offered up a snapshot of the types of mortgage loans closed in February. Sixty-seven percent were refinances and 33 percent were for the purchase of a home.
The Federal Housing Administration (FHA) garnered 25 percent of the new market share in February, while conventional loans made up 67 percent of the month’s closings.
The timeline from application to closing for the average loan was 44 days in February and 43 for a refinance, up 10 percent and 16 percent, respectively, over where the industry was six months ago. Corr says these timeframes track with the increases in demand seen at the end of 2011.
To get a meaningful view of lender “pull-through,” Ellie Mae reviewed loan applications initiated within the previous 90 days to calculate a closing rate and found that nearly 48 percent of all applications closed. There was a higher percentage of purchase mortgages closing (60%) than refinances (42%).
In 2011, the total volume of mortgages that ran through Ellie Mae’s Encompass360 mortgage management software was approximately two million loan applications, or 20 percent of all U.S. mortgage originations. The company’s Origination Insight Report mines its data from a sampling of approximately 33 percent of all applications initiated on the Encompass origination platform.
Given the size of this sample and Ellie Mae’s market share, the company believes the Origination Insight Report is “a strong proxy of the underwriting standards that are being employed by lenders across the country.”

Article of the Day

FHA Premiums May be Going Up, But a Loan Officer Offers a Way Out

04/05/2012 By: Esther Cho 

Starting next Monday on April 9, FHA upfront mortgage insurance premiums will rise from 1 percent to 1.75 percent of the base loan amount, and the annual mortgage insurance premium will rise by 0.10 percent for loans under $625,500 and by 0.35 percent for loans above that amount.

Even if one hasn’t applied for a loan just yet, Dan Green, loan officer with Waterstone Mortgage in Cincinnati and author of themortgagereports.com, said by getting an FHA loan registered by April 9, one can avoid paying those premiums.
“To register an FHA loan simply means to have an FHA Case Number assigned to it. You don’t have to lock a mortgage rate and you don’t even have to choose a particular lender to work with,” Green said in his blog.

In order to get an FHA Case Number, Green said you just need a name, social security number, property address, and a few other small details.
To get a better understanding of how this works and what it could mean, Green answered questions from DS News.
DS News: Do you know what the estimated monthly or yearly savings is for a borrower if they do get an FHA Case Number by April 9?
Dan Green: The savings will vary based on loan size. For every $100,000 borrowed, an FHA mortgage applicant will save $750 at the time of closing, and $100 per year.
DS News: How long does it take for a loan officer to get an FHA Case Number?
Dan Green: Lenders can request FHA Case Numbers from the FHA with nothing but a complete mortgage loan application in-hand.
DS News: How long is the FHA Case Number good for? For example, what if you get the number but don’t actually look into getting a loan until months later?
Dan Green: FHA Case Numbers expire after 6 months of non-activity.
DS News: If you don’t have a loan officer to work with already, can people just call a lender and ask for a loan officer to get a number or does it need to be someone you are planning to get a loan from as well?
Dan Green: FHA mortgage applicants can transfer FHA Case Numbers from lender-to-lender.

Article of the Day

Home Prices to Increase Modestly by Year-End: Clear Capital

04/04/2012 By: Carrie Bay

The valuation firm Clear Capital released the results of its home price forecasting models Thursday. The company expects residential property values at the national level to show slight increases over the next three months, ending the year with a growth rate of 1.2 percent.

Diagrams illustrating the trajectory of home prices from 2006 to now and Clear Capital’s projections heading into 2013 depict the valley shape with current prices at the bottom and a subtle upward trend from March through December of 2012.
The strongest of the country’s four regions throughout much of 2011, the Northeast, is expected to see a modest gain of 0.3 percent over the next three months but pick up momentum and grow prices by 1.3 percent to wrap up the year.
The South is expected to perform the strongest in the short term with prices projected to increase 0.5 percent over the next three months, and end the year up 1.6 percent.
Clear Capital’s forecast indicates the Western region could be turning a corner. The three-month numbers show the region gaining 0.2 percent, and pushing that to a positive 1.0 percent by year-end.
The Midwest remains the weakest region of the country in terms of home prices. There, Clear Capital is expecting a drop of 0.6 percent over the next three months, but then movement into positive territory with a 0.7 percent gain by December.
The 50 metropolitan statistical areas (MSAs) tracked by Clear Capital are forecast to show mixed gains and losses, with 30 markets expected to see gains and 20 markets projected to post losses through the end of 2012.  Over half of the metros in the company’s study should see prices move less than 2 percent in either direction. No double-digit declines are expected however, Phoenix, Arizona, and Tampa, Florida, are expected to see double-digit gains.  Clear Capital sees positive price trends on the horizon for most of the country, despite the fact that currently home prices are continuing to slip. Data through March 2012 shows national home prices fell 0.2 percent in Clear Capital’s rolling quarter-over-quarter analysis.

The West, South, and Northeast posted quarterly gains of less than 1 percent, and the Midwest lost a significant 2.4 percent.  The year-over-year numbers showed even weaker performance for the nation and all its regions, indicating short-term appreciation has yet to be enough to turn the long-term tide.
According to Clear Capital’s assessment, the nation lost 1.4 percent in home values from March 2011 through March 2012, which is slightly better than February’s year-over-year decline of 1.9 percent.
REO saturation, which traditionally pushes down prices, continued to climb last month, Clear Capital reported. It was the second month in a row that distressed property sales as a percentage of total sales increased for the nation and all regions.  Clear Capital says its findings confirm speculation that finalization of the attorneys general settlement has led servicers to become more aggressive in moving their REO backlog onto the housing market.  In March, the national REO rate went up 1.2 points from the previous month’s reading to hit 27 percent, pointing to an acceleration of REO sales. The Midwest contributed the most to the increase, jumping 3.8 points to 34.3 percent, with the other regions all seeing softer increases.
Of particular interest this month, according to Clear Capital, is how the changes in REO saturation are affecting prices. In the past, there has been a consistent inverse relationship between changes in REO saturation and prices, but not in March’s study. Although their REO rates increased, the West, Northeast, and South regions also saw home prices increase.  These geographies are exhibiting a pricing resilience to REO saturation that has not been seen in previous analyses, Clear Capital says. The company says it could be explained by improvement in jobs numbers recently, rapidly increasing investor activity in certain regions, and a general increase in consumer confidence.

Article of the Day

Lenders' Risk Managers Expect Mortgage Delinquencies to Drop

04/03/2012 By: Carrie Bay 

FICO’s quarterly survey of bank risk professionals found a reversal in the sentiment of U.S. lenders, with expectations for loan repayments more upbeat in the first quarter of 2012 than they had been during the previous quarter.

The survey, conducted for Minneapolis-based FICO by the Professional Risk Managers’ International Association (PRMIA), found fewer lenders anticipating a rise in delinquencies on home loans than at any time since FICO launched its survey in early 2010.
In the latest survey, the number of respondents expecting mortgage delinquencies to increase over the next six months was 12 percentage points lower than last quarter – dropping from 47 to 35 percent.

“As unemployment falls, even modestly, and four years of deleveraging begin to pay dividends, bankers are allowing themselves to feel some optimism,” Dr. Andrew Jennings, FICO’s chief analytics officer and head of FICO Labs, said.
“Of course,” Jennings stressed, “we’re not out of the woods. Foreclosures continue to put pressure on home prices, and jobs are coming back slowly. But we seem to be headed in the right direction. If we can avoid major bumps in the road, such as a spillover effect from the Eurozone crisis, we should continue to see delinquencies drop.”
Lenders’ optimism doesn’t end with mortgages either. They anticipate the holistic picture of consumer and household debt to improve, with fewer respondents expecting delinquencies to rise for small business loans or any personal finance items – including auto loans, credit cards, and even student loans – than in previous surveys.
However, when asked about the availability of credit for specific loan types over the next six months, the majority of respondents expect supply to meet or exceed demand for all loan types except mortgages.
The credit gap persists in housing, with lenders unsure about the real estate sector. Fifty-six percent of respondents believe credit supply will not meet demand for residential home loans.
The FICO survey included responses from 263 risk managers at banks throughout the United States and was conducted in February 2012.

Article of the Day

Spring Outlook: Reports From the Field Suggest Better Days Ahead

04/02/2012 By: Carrie Bay

Despite the fact that key market indicators released in recent weeks have shown declines in home sales, anecdotal reports from real estate agents in the field suggest “better days are ahead for the industry,” according to commentary released Monday by the economic team at Wells Fargo Securities, LLC.

Even builders – who’ve endured possibly the steepest drop-off in business over this downturn – are optimistic heading into the spring, the economists note.
As a result, Wells’ economic team has nudged its forecast for home sales slightly higher, as the spring selling season appears to have gotten off to a strong start. They are now expecting sales of existing homes to top out at 4.50 million in 2012 and rise to 4.65 million in 2013. These annual projections compare to 4.26 million existing homes sold in 2011.
“While employment conditions have clearly improved and consumer confidence and spending have risen, we remain concerned about the lack of real after-tax income growth.

That said, the anecdotal evidence is hard to dismiss,” the economists write.
Most real estate agents are reporting “significant gains in buyer interest and sales,” and these gains are organic rather than incentive induced, according to the Wells Fargo economic team.
Unfortunately, they note that conservative appraisals and tight mortgage underwriting continue to undermine a large number of deals, however, they “suspect that the undertow from these two hindrances will subside over the course of this year, as the fog surrounding shadow inventories lightens up a bit and more lenders come back to the market.”
Unseasonably warm weather led to upticks in existing-home sales in December and January. Those gains were paid back with a 0.9 percent decline in February, but the economic group at Wells says the underlying trend remains positive and they expect to see further improvements as the spring homebuying season kicks off.
Distressed transactions still make up a considerable portion of overall sales activity and will continue to pressure prices through at least the first half of 2012, they note in the report. Real home prices are now back down to 1999 levels, as are price-to-rent ratios, according to the economists.
“We expect home prices to definitively bottom by the middle of this year, as the backlog of foreclosures finally begins [to] clear,” writes Wells Fargo’s economic team. “For properties not in foreclosure, prices have probably already bottomed, but should remain relatively low” given the competition from foreclosures.

Article of the Day

Preventing 'Moral Hazard' Issue for Principal Reduction

03/30/2012 By: Esther Cho 

They say foreclosure harms everyone – the lenders, the borrowers, and even the neighbors. While avoiding foreclosure has been established as an unwavering goal for the benefit of everyone, the question that is creating tension between policy makers, advocacy groups, and analysts is how to best prevent foreclosure.
With numbers from a CoreLogic report revealing 22.8 percent of borrowers are underwater, principal reduction has been eyed as a key solution to keeping borrowers in their homes.

For Fannie Mae and Freddie Mac, the FHFA has not given the go ahead to apply principal reduction, despite reports that the GSEs are in support of the foreclosure prevention measure.
The Wall Street Journal reported that Treasury Secretary Timothy Geithner, during a Senate subcommittee hearing, said, “I think Fannie and Freddie themselves are actually pretty supportive of this,” Geithner said. Their regulator, he said “has been a little more conservative.”
Recently, to encourage the GSEs to apply principal reduction, the Treasury tripled incentives it will pay them. According to a Capital Economics report released Friday, this means the Treasury will raise incentives from between 6 and 21 cents for every dollar of principal reduced to between 18 and 63 cents.
“So in theory, the direct cost to Fannie and Freddie of reducing its $100 [billion] of negative equity has fallen from a midpoint of $87 [billion] to $60 [billion]. No wonder the FHFA might now be keener on the idea,” Capital Economics stated.
According to a report from the Office of Comptroller of the Currency (OCC), the two mortgage giants made up 59 percent of the overall portfolio of mortgages during the 2011 fourth quarter, a figure that has further fueled the argument that it is important that the GSEs also be allowed to apply principal reduction to help the housing market recover.
At the same time, the percentage of GSE mortgages that were current and performing at the fourth quarter’s end was 93.1 percent, according to the OCC. And, according to the FHFA, about three out of four underwater Fannie and Freddie borrowers are still making their monthly payments.

However, Capital Economics points out that those delinquent negative equity loans at Fannie and Freddie could add up to 600,000 homes to the visible inventory if they end up in foreclosure.
But, if the GSEs maintain a high percentage of current loans and most of their underwater borrowers seem to be making their payments, opponents of principal reduction argue that borrowers who could afford their payments might purposely default just so they can qualify for principal reduction. Also, principal-reduction could be viewed as discriminating against those who were conservative when borrowing funds for their mortgage, according to a white paper issued by the Fed.
The Center for American Progress (CAP) released a report Thursday detailing solutions to the “moral hazard” issue regarding borrowers who would go into default on purpose.
John Griffith and Jordan Eizenga, policy analysts with CAP, offered three solutions.
“The simplest solution would be to make this a one-time program open to borrowers that are already delinquent when the program begins. Such a rule limits the borrower’s ability to default intentionally just to be eligible,” the report stated.
The second option is to open the program up for current borrowers who are at-risk and about to go into default.
The third suggestion in the report is to have so-called “shared appreciation” modifications, where the GSEs write down a portion of principal in exchange for a portion of the future appreciation on the home.
“The borrower has a reason to keep paying, while the lender benefits when home prices eventually stabilize and rebound,” the report stated. This could make principal reduction less attractive to borrowers who don’t actually need it.
The report also suggested targeting certain types of borrowers. More specifically, principal should be applied towards borrowers that are most likely to benefit from a reduction, such as those with a mortgage that’s worth at least 115 percent of the home’s current value; are either delinquent on their mortgage payments or about to be; face a long-term economic hardship; and do not have private mortgage insurance or a second lien.
With $700 billion in negative equity, Capital Economics stated that the GSEs could remove $100 billion of the total negative equity at best.
The research firm also added that “the scale of the principal reductions and the resulting decline in foreclosures are unlikely to be sufficient to make a major difference to the immediate housing outlook.”
When assessing the overall impact of principal reduction on Fannie and Freddie mortgages, Capital Economics said, “It won’t solve the foreclosure problem in one fell swoop, but it certainly won’t hinder the housing recovery that is already underway.”